LIFE INSURANCE GIFT

When a life insurance policy is initially purchased, it is usually intended to ensure the financial stability of a family should a tragic event occur. However, life insurance can be a tool with many purposes. If a family has a whole life insurance policy they no longer need for its original intent, they can contribute it to the Society. Purchasing a new policy and naming the Society as beneficiary is another possibility. This often makes a significant future gift feasible and affordable, especially for younger donors. Alternatively, perhaps someone is considering a sizable bequest to the Society, provided his or her family's future inheritance is not affected. Life insurance can play a part in meeting this goal, too, by replacing the amount donated back to the estate.

Naming the Society as Beneficiary - If an individual names the Society as beneficiary of a life insurance policy that the individual owns, no income tax deduction is available because the donation is not a complete interest in the policy. Thus, an individual may fulfill his charitable intentions by naming the Society as beneficiary of a life insurance policy; however, the individual will not receive the benefit of a lifetime income tax deduction.

Transferring Policy Ownership to the Society - Contributions of a life insurance policy to a charitable organization generates an income tax deduction generally equal to the fair market value of the policy, reduced to the donor's basis in the contract (generally, the total of the premium payments).

Paying for a Policy and Naming the Society as Beneficiary - A donor may choose to buy a new policy or transfer an existing policy to the Society while premium payments are still being made. The subsequent payments made each year by the donor are tax deductible, or the donor may write a check to the Society and have the Society continue the payments. Under either scenario, the payments are tax deductible.

Example:
Bill owns a $250,000 whole life policy with a cash value of $50,000. He chooses to transfer the policy to the Society, naming the Society as the new owner and the beneficiary. Bill receives a charitable tax deduction for $50,000. If Bill continues to make the premium payments each year, those payments are also tax deductible.

Indirect Use of Insurance for Wealth Replacement - In recent years, probably the greatest increase in using life insurance in philanthropic plans has been to replace for heirs of an estate a value given, by one means or another, to a charitable organization like the Society. A significant outright charitable gift might reduce the projected value of inheritances for family members. However, depending on the age, health, and marginal income tax rate of the donor, income tax savings from use of the charitable deduction can be enough to purchase life insurance, whose death benefits equal the value of the gift.

Example:
Joan makes a charitable gift of a building that has appreciated since she acquired it long ago. She knows that, among other benefits, this allows her estate to realize greater tax savings than if she had bequeathed the building to her children. (She might also have sold the building, but then she would have to pay capital gains tax.) She then purchases life insurance for the benefit of her children, an expense that she would have paid anyway in taxes, had it not been for the charitable deduction she received for her gift to us. Instead of receiving a building, her children will receive cash from the insurance policy - and all of this happens outside the probate process.